Google Adwords for affiliate marketing – a lesson learnt

Before I started using Google Adwords for affiliate marketing I read Advanced Google Adwords by Brad Geddes.  I don’t think I’ve ever read a guide book that has such a clear logical exposition along with great examples which help clarify the principles he’s discussing.  The book’s discussion of goal alignment: Google vs. You vs. the Searcher provides a clear framework which Adwords users should keep in mind when putting together a successful campaign.  (Although I admit I do find it strange that he titles this section Google vs You vs the Searcher because the use of “vs” suggests these parties are against each other.  The key to successful marketing is to align yourself with the searcher.)   The rest of the book then takes you through in detail how to get the best out of Google Adwords.  The clarity of the book reminded me of the Headfirst Series, but Google Adwords feels more structured than the Headfirst books.  The parts on using Excel to analyse your Adwords account are also really helpful.  You can buy Brad’s book here.

Google Adwords for affiliate marketing – a lesson learnt

I spent some time and cash putting Brad’s advice into practice and using Google Adwords for affiliate marketing, but didn’t get good results.  Then it struck me that the type of advertising I was engaging was very unlikely to succeed.  I’ve explained my mistake below so hopefully others can learn from this and avoid wasting their money on unsuccessful Google Adwords campaigns.

What was my goal?

As the book says, don’t spend a penny until you have worked out your goal.  My goal was to have a positive ROI Adwords campaign and my plan was as follows.

In the UK Hawes and Curtis sells shirts online directly, but also sells shirts through Amazon.  For reasons I don’t understand, the shirts are often much cheaper on Amazon.  You can often buy the same shirt on Amazon for a 30% discount (the exact amount will depend on what offer Hawes and Curtis are running at the time).  My plan was to advertise on the “Hawes and Curtis” keyword phrase, bring customers to my site, explain how they could save money buying the same shirt on Amazon, then hopefully earn commission through affiliate links on Amazon.

I read up on the problems associated with using Google Adwords for affiliate marketing and the potential pitfalls and put together a landing page which hopefully fulfilled the guidelines Google set out on their site here.

Why didn’t it work?

I ran my Adwords compaign for two weeks, but the revenue was way less than the amount I was spending on Adwords.  I then worked out why this type of advertising campaign is unlikely to ever work if I’m competing against Amazon for those same keywords.  It’s almost mathematically impossible for me to make a positive return, as I explain below.

Step 1 – work out what Amazon is willing to pay for an advert

Amazon is selling the Hawes and Curtis shirts and is probably making a 15% margin on each sale  (http://services.amazon.co.uk/services/sell-on-amazon/pricing.html)

Let’s make some assumptions to clarify the example (these don’t affect the conclusions).

1.    Each shirt sells for £25 and Amazon sells one shirt. (For exposition purposes I’m simplifying here by ignoring other factors like Amazon could sell multiple products.)
2.    Amazon’s conversion rate is c, where c is between 0 and 1, where 1 represents a 100% conversion rate.

Given this, Amazon should be willing to pay 0.15 x £25 x c = 3.75c.  So if Amazon’s conversion rate is 10% it would break even at 37.5p per click.

Step 2 – work out what I should be willing to pay for an advert

My commission rate on Amazon is 5% and to make it comparable assume one shirt is sold for £25.  The total conversion rate will be the conversion rate from my site to Amazon TIMES Amazon’s conversion rate.  So if my conversion rate is s, the total conversion rate is c x s.

Given this, I should be willing to pay 0.05 x £25 x c x s = 1.25cs.

Step 3 – Compare the two bids.

Amazon is willing to pay 3.75c and I’m willing to pay 1.25cs.  Since s can never be larger than 1 because I can never have a conversion rate greater than 100% I can never outbid Amazon and make a profit.  The only other option is to increase my quality score by optimising the text and landing page.  I tried improving that over time, but couldn’t get to a level where I was able to compete with Amazon.

What’s the take-away?

Many people on the web have talked about the “google slap” and the issues affiliate marketers have using Google adwords.  These issues are all still relevant, but if you are using affiliate links you should think hard (I didn’t initially) about the underlying economics of competing on certain keywords.  Affiliates should be very wary of bidding on key words against the retailers they earn commission from, even when retailers allow this.  Before you start bidding it’s worth doing the maths to see whether it’s ever likely to be possible to bid successfully on these keywords.  Unless there are other reasons why you want to bring traffic to your site (e.g. to increase visits to increase the profitability of your Adsense campaigns), then bidding against retailers could be a quick way to waste your money.

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